03/17/2003 01:50 PM FIN

HOUSE FINANCE COMMITTEE
March 17, 2003
1:50 PM
TAPE HFC 03 - 34, Side A
TAPE HFC 03 - 34, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 1:50 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Mike Hawker
Representative Bill Stoltze
Representative Richard Foster
MEMBERS ABSENT
Representative Reggie Joule
Representative Carl Moses
Representative Jim Whitaker
ALSO PRESENT
Former Senator Sean Parnell, Director, State and Government
Relations, ConocoPhillips Alaska, Inc., Jaqueline Tupou,
Staff, Senator Lyda Green, Devon Mitchell, Executive
Director, Alaska Municipal Bond Bank Authority, Department
of Revenue, Elmer Lindstrom, Special Assistant, Department
of Health and Social Services.
PRESENT VIA TELECONFERENCE
None
SUMMARYHB 16 "An Act amending the standards applicable to
determining whether, for purposes of the Alaska
Stranded Gas Development Act, a proposed new
investment constitutes a qualified project, and -
repealing the deadline for applications relating
to the development of contracts for payments in
lieu of taxes and for royalty adjustments that may
be submitted for consideration under that Act; and
providing for an effective date."
CS HB 16 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with previously
published fiscal impact note (CED #1), and a new
fiscal impact note by the Department of Revenue.
SB 51 "An Act relating to revenue bonds issued by the
Alaska Municipal Bond Bank Authority and the total
amount of bonds and notes outstanding of that
authority; and providing for an effective date."
SB 51 was REPORTED out of Committee with a "do
pass" recommendation and with two previously
published zero fiscal notes: REV #1 and DCED #2.
SB 78 "An Act relating to an optional group of persons
eligible for medical assistance who require
treatment for breast and cervical cancer; relating
to cost sharing by those recipients under the
medical assistance program; and providing for an
effective date."
SB 78 was REPORTED out of Committee with "no
recommendation" and with a previously published
fiscal impact note: HSS #1.
HOUSE BILL NO. 16
"An Act amending the standards applicable to
determining whether, for purposes of the Alaska
Stranded Gas Development Act, a proposed new investment
constitutes a qualified project, and repealing the
deadline for applications relating to the development
of contracts for payments in lieu of taxes and for
royalty adjustments that may be submitted for
consideration under that Act; and providing for an
effective date."
Co-Chair Williams began discussion on the bill, and
introduced the Sponsor. He indicated that discussion had
previously occurred on Amendment #2, 23LS0101/Q3, introduced
by Representative Whitaker on 10/10/03.
REPRESENTATIVE HUGH FATE, SPONSOR, indicated that, per
discussions through Representative Whitaker's staff,
Representative Whitaker had conveyed that he had no
objection to withdrawing Amendment #2. Representative Fate
referred to changes proposed in a subsequent amendment
(Amendment #3 -- 23 LS0101/Q.6).
Co-Chair Harris noted that the MOTION to adopt Amendment #2
was still pending.
A roll call vote was taken on the motion to adopt Amendment
#2.
IN FAVOR: Croft
OPPOSED: Chenault, Hawker, Meyer, Stoltze, Harris, Williams
Representatives Foster, Moses, Joule and Whitaker were not
present for the vote.
The motion FAILED on a vote of 6-1
Co-Chair Harris MOVED to ADOPT Amendment #3:
23-LS0101\Q.6
Chenoweth
A M E N D M E N T
OFFERED IN THE HOUSE
TO: CSHB 16(RES)
Page 1, line 8, following "terms;":
Insert "providing a statement of intent for the Act relating to reopening of contracts;"
Page 1, following line 9:
Insert a new bill section to read:
"* Section 1. The uncodified law of the State of
Alaska is amended by adding a new section to read:
LEGISLATIVE INTENT. It is the intent of the
legislature that each contract for payments in
lieu of taxes and for royalty adjustments entered
into under the Alaska Stranded Gas Development Act
contain a provision by which the contract may be
reopened by any party to the contract. The
subject matter of the reopening may be dealt with
through the use of arbitration proceedings agreed
on by the parties."
Page 1, line 10:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill sections accordingly.
Page 2, line 29:
Delete "15"
Insert "10"
Page 2, line 31:
Delete "25"
Insert "15 [25]"
Representative Croft OBJECTED.
Representative Fate addressed the amendment. He summarized
that it intended to accomplish three things: change the net
worth requirement for qualified sponsors from fifteen to ten
percent [of the project cost], change the available credit
requirement from twenty-five to fifteen percent [of the
project cost], and add intent language allowing reopening
provisions for payment contracts.
Responding to a question from Representative Croft,
Representative Fate stated that the current cost estimate
for the project cost was $9 billion, and explained that
changing the net worth requirement would allow the
commissioner to qualify more sponsors to participate in the
project.
Representative Croft clarified that sponsors previously
needed $1.5 billion to participate. With the amendment a
sponsor would need slightly under $1 billion.
Representative Fate confirmed that this was true, adding
that the figure might vary depending on how many sponsors
the commissioner qualified.
There being no Objection, Amendment #3 was ADOPTED.
Representative Croft MOVED to ADOPT Amendment #4:
AMENDMENT
OFFERED IN THE HOUSE FINANCE COMMITTEE
BY REPRESENTATIVE CROFT
TO: CS HB 16 (RES)
Page 3, line 7, insert:
"Sec. 4.AS 43.82.210 is amended to read:
AS 43.82.210. Contract Terms Relating to Payment in Lieu of One or More Taxes.
(a) If the commissioner approves an application and
proposed project plan under AS 43.82.140 , the
commissioner may develop proposed terms for inclusion
in a contract under AS 43.82.020 for periodic payment
in lieu of one or more of the following taxes that
otherwise would be imposed by the state or a
municipality on the qualified sponsor or member of a
qualified sponsor group as a consequence of
participating in an approved qualified project:
(1) oil and gas production taxes and oil surcharges
under AS 43.55;
(2) oil and gas exploration, production, and pipeline
transportation property taxes under AS 43.56;
(3) [Repealed, Sec. 6 ch 34 SLA 1999].
(4) Alaska net income tax under AS 43.20;
(5) municipal sales and use tax under AS 29.45.650 -
29.45.710;
(6) municipal property tax under AS 29.45.010 -
29.45.250 or 29.45.550 - 29.45.600;
(7) municipal special assessments under AS 29.46;
(8) a comparable tax or levy imposed by the state or a
municipality after June 18, 1998;
(9) other state or municipal taxes or categories of
taxes identified by the commissioner.
(b) If the commissioner chooses to develop proposed
terms under (a) of this section, the commissioner
shall, if practicable and consistent with the long-term
fiscal interests of the state, develop the terms in a
manner that attempts to balance the following
principles:
(1) the terms should, in conjunction with other factors
such as cost reduction of the project, cost overrun
risk reduction of the project, increased fiscal
certainty, and successful marketing, improve the
competitiveness of the approved qualified project in
relation to other development efforts aimed at
supplying the same market;
(2) the terms should accommodate the interests of the
state, affected municipalities, and the project
sponsors under a wide range of economic conditions,
potential project structures, and marketing
arrangements;
(3) the state's and affected municipalities' combined
share of the economic rent of the approved qualified
project under the contract should be relatively
progressive; that is, the state's and affected
municipalities' combined annual share of the economic
rent of the approved qualified project generally should
not increase when there are decreases in project
profitability, or decrease when there are increases in
project profitability;
(4) the state's and affected municipalities' combined
share of the economic rent of the approved qualified
project under the contract should be relatively lower
in the earlier years than in the later years of the
approved qualified project;
(5) the terms should allow the project sponsors to
retain a share of the economic rent of the approved
qualified project that is sufficient to compensate the
sponsors for risks under a range of economic
circumstances;
(6) the terms should provide the state and affected
municipalities with a significant share of the economic
rent of the approved qualified project, when discounted
to present value, under favorable price and cost
conditions;
(7) the method for calculating the periodic payment in
lieu of certain taxes under the contract should be
clear and unambiguous; and
(8) while cost calculations for the approved qualified
project under the contract should be based on amounts
that closely approximate actual costs, agreed-upon
formulas reflecting reasonable economic assumptions
should be used if possible to promote administrative
certainty and efficiency.
(c) Except as provided in (b) of this section, the
commissioner's discretion under this section in
developing proposed terms for a contract under AS
43.82.020 is not limited to consideration of the
economic rent of the approved qualified project.
(d) Nothing in this chapter shall be construed topermit the state to suspend or contract away the powerof taxation.
Renumber accordingly.
The amendment is designed to increase certainty by forestalling any argument or court challenges based on the claim that there is some hidden escape hatch to the sovereignty provision of the Alaska Constitution. If the supporters of this legislation believe it really requires a constitutional amendment, then they should go that route, rather than creating all sorts of uncertainty for future legislatures
Co-Chair Williams OBJECTED.
Representative Croft explained that the amendment was
intended to support a clear prohibition against signing away
the State's power of taxation. He maintained the need to
clarify this constitutional mandate.
Co-Chair Williams asked if the intent of the amendment was
to restate constitutional mandates. He speculated that this
might be cumbersome with other legislation, and disagreed
with the need for the amendment.
Representative Croft maintained that rarely did legislation
play so close to the constitutional line.
Co-Chair Harris concurred with Co-Chair Williams' question
of the need for the amendment. He asked former Senator
Parnell to address the question.
SEAN PARNELL, DIRECTOR, STATE AND GOVERNMENT RELATIONS,
CONOCOPHILLIPS ALASKA, INC., spoke in opposition to the
amendment. He expressed his company's desire for a clean
bill. He also noted the need for legislation that
contributed to certainty in the negotiation process. He
contended that nothing appeared in the legislation that
would surrender the powers of taxation. He argued that the
legislation merely determines the amount of taxation at the
project's inception.
Co-Chair Williams requested that the Department of Law be
consulted to address the issue.
RANDY RUARO, STAFF, REPRESENTATIVE WILLIAMS, responding to a
question by Co-Chair Williams, observed the difference
between designating the amount of tax and the actual power
to tax. He maintained that no authority was given away by
the legislation.
Representative Croft noted the importance of discussion on
this matter, and suggested that industry's objection to the
amendment indicated the need for the amendment. He
suggested that the goal of fiscal certainty approximated a
state agreement never to change tax policy. He cited vague
commitments on the part of industry such as "moral
obligation". He maintained the imperative not to negotiate
away the power of future legislatures to change tax policy.
Co-Chair Williams agreed that clarity was necessary.
However, he expressed the desire to show support for those
negotiating the project contracts, and to trust that they
would adhere to the constitution at all times.
Representative Croft WITHDREW the amendment. He noted that
he would submit the amendment to the Attorney General's
office to receive further feedback.
Representative Foster MOVED to report HB 16 out of Committee
with the accompanying fiscal notes.
There being no OBJECTION, it was so ordered.
CS HB 16 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with previously published fiscal
impact note (CED #1), and a new fiscal impact note by the
Department of Revenue.
SENATE BILL NO. 51
"An Act relating to revenue bonds issued by the Alaska
Municipal Bond Bank Authority and the total amount of
bonds and notes outstanding of that authority; and
providing for an effective date."
DEVON MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, spoke in support of
the bill. He summarized that the bill accomplished two
things: First, increasing the total borrowing cap of the
Alaska Municipal Bond Bank (Bond Bank) from $300 million to
$500 million. He noted that the cap had been at $300
million since 1984, when it was increased from $150 million.
The second intension of the bill is to increase the ability
to issue revenue bonds in any fiscal year from $50 million
to $75 million.
Mr. Mitchell discussed the history of the Bond Bank, created
in 1975 and funded by the legislature with appropriations
over the next ten years totaling $18.6 million. He
explained that the Bond Bank is a conduit borrower, only
borrowing funds when a community project is at hand.
Mr. Mitchell stated that currently $240 million in bonds are
outstanding for projects in a variety of communities
throughout the state. He noted that the current application
load is expected to exceed the $300 million cap in FY 04,
which he explained was the reason for the bill.
Mr. Mitchell also stated that additional revenue bond
applications had been received in FY 03 exceeding the $50
million cap. He noted that Valdez, last community to come
to the Bond Bank, would be required to either wait until FY
04 or pursue the more costly process of issuing two series
of bonds.
Mr. Mitchell pointed out that the Bond Bank provided savings
on financing costs to communities of financing capital
projects over the past three fiscal years of between $3 and
$4 million. He also noted that the Bond Bank provides an
annual dividend to the state of Alaska. In FY 2002, a $1.67
million transfer occurred, which he maintained was a good
return on the initial investment.
Representative Croft noted the need to ensure that
municipalities were not overburdened with debt. He asked
how it was determined if an amount was excessive.
Mr. Mitchell explained that an independent board of
directors reviewed municipal applications, as well as a
financial advisor who reviewed the financial statements of
borrowing municipalities. He noted that recommendations
were then made to the Bond Bank who ultimately approved or
denied the loan. He pointed out that a borrower could
increase the likelihood of approval by getting local support
through additional public processes.
In response to a question by Representative Croft, Mr.
Mitchell noted that applications were rarely rejected. He
explained that the Bond Bank suggested grant opportunities
or other loan programs if a community did not demonstrate
sufficient planning on a project, or if they showed
insufficient funding to repay the loan. He summarized that
this was a collaborative process with municipalities to help
them achieve project success.
Responding to a follow up by Representative Croft, Mr.
Mitchell stated that no municipalities have defaulted.
Co-Chair Harris asked if the amount [of the cap] was
adequate to meet anticipated needs. He pointed out this was
the first request for an increase since the 1980's.
Mr. Mitchell confirmed that the cap was adequate since the
Bond Bank was a mature program, with a good portion of debt
being repaid each fiscal year. He gave the example of the
school debt reimbursement program, whereby the State
required communities to issue at least ten-year notes, upon
which they received state reimbursement of some percentage.
He noted that much of the debt was over ten year periods,
yielding a gradual financial curve.
Mr. Mitchell suggested that the legislature maintain a good
understanding of the moral obligation debt of the state of
Alaska. He explained that "moral obligation debt" signified
the obligation of the legislature to replenish a reserve
fund within the Bond Bank if there were a default. He
proposed that the bill was a good step to allow for current
borrowing needs, while maintaining control over the
Authority.
Representative Foster MOVED to report SB 51 out of Committee
with the accompanying fiscal notes.
There being no OBJECTION, it was so ordered.
SB 51 was REPORTED out of Committee with a "do pass"
recommendation and with two previously published fiscal
notes: REV #1 and DCED #2.
SENATE BILL NO. 78
"An Act relating to an optional group of persons
eligible for medical assistance who require treatment
for breast and cervical cancer; relating to cost
sharing by those recipients under the medical
assistance program; and providing for an effective
date."
JAQUELINE TUPOU, STAFF, SENATOR LYDA GREEN, SPONSOR, spoke
in support of the bill. She explained that the bill removes
the sunset provision of the 2001 legislation and ensures
continued treatment for women who have been participating in
the Breast and Cervical Cancer Care program. She also noted
that the bill creates future certainty to those persons who
may be diagnosed with these ailments in the future.
Ms. Tupou continued to summarize that the bill gives
authority to the Department of Health and Social Services
(DHSS) to allow maximum cost sharing as per the federal law.
She noted that currently Alaska was imposing the maximum
cost sharing. She pointed out that statute contains the
word "lesser", and the current legislation states future
authority, allowing submission of an amended state program
should the federal government raise the level of cost
sharing.
Ms. Tupou referred to a handout (copy on file) regarding
poverty guidelines pertaining to a specific category of the
Medicaid program, allowing for 250 percent of the poverty
level. The guideline for a family of three is $46,950, and
for a family of four, $56,575.
Co-Chair Harris referred to the HESS fiscal note with a cost
of $282 thousand of general funds, to match $680 of federal
funds. He also pointed out that in FY 2009, the cost would
be nearly double, projected at $544 thousand. He asked if
the program was optional under Medicaid.
Ms. Tupou contended that the program was not optional. She
added that the program was initially a screening program,
but that when women were diagnosed, the program was extended
to close the loop between diagnosis and treatment. She
concluded that the program is currently required through
that legislation. She read from Public Law 106-354, enacted
th
by the 106 Congress, speculating that it was predicated
upon participation in the diagnosis program. She maintained
that because the State participates in the diagnosis portion
of the program, the treatment portion is also required.
Co-Chair Harris asked whether the federal government
required participation in the diagnosis portion of the
program.
ELMER LINDSTROM, SPECIAL ASSISTANT, DEPARTMENT OF HEALTH AND
SOCIAL SERVICES spoke in support of the bill. He clarified
that the state's participation in the program was optional.
Co-Chair Harris referred to the fiscal note in relation to
the DHSS budget and the matching of federal dollars. He
asked if the estimate for FY 09 of $544 thousand was a
realistic figure, and what was driving the increase.
Mr. Lindstrom stated that the fiscal note was well within
initial projections. He referred to page 2 of the fiscal
note, which indicated two reasons for the increase in costs:
1) a five percent annual increase in total recipients and 2)
an assumption that expenditures in this category would grow
at a rate of 10 percent per year, similar to the national
average growth for Medicaid spending.
Responding to a comment by Co-Chair Harris, Mr. Lindstrom
referred to the package of bills introduced last week at the
request of the Governor directed at Medicaid cost
containment. He also expressed the Governor's enthusiastic
support of SB 78.
Representative Croft MOVED to ADOPT Amendment #1:
23-LS0592\A.1
Lauterbach
A M E N D M E N T
OFFERED IN THE SENATE
TO: SB 78
Page 1, lines 2 - 3:
Delete "relating to cost sharing by those recipients under the medical assistance program;"
Page 1, line 8, through page 2, line 3:
Delete all material.
Renumber the following bill sections accordingly.
Page 2, lines 22 - 28:
Delete all material.
Renumber the following bill section accordingly.
Co-Chair Harris OBJECTED.
Representative Croft explained that the amendment deleted
cost sharing language. He noted his discomfort with
specific cost sharing language, suggesting that it was not
appropriate, and possibly not legally allowable. He
maintained that the language sent a "mixed message", as it
pertained to only a portion of the population.
Ms. Tupou reiterated that the category was at 250 percent of
poverty level, and added that the category contained no
asset test. She maintained that the category was therefore
a special category.
Representative Stoltze asked about the fiscal impact of the
amendment. Mr. Lindstrom stated that the amendment would
not impact the current fiscal note.
Ms. Tupou suggested that if in the future the federal
government allowed more cost sharing, the amendment might
have an impact.
Responding to a question by Co-Chair Williams, Ms. Tupou
maintained that the amount of the co-payment was minimal: $2
for prescription drugs, and a maximum $200 for hospital
stay.
Representative Croft asked if the fiscal note was not
impacted by the amendment since it could not be implemented
currently.
Mr. Lindstrom observed that the language in SB 78 was
similar to that authorizing the Denali Kid Care Program. He
pointed out the similarity in that, under current federal
law, additional cost sharing provisions were not possible.
He noted that, in the case of Denali Kid Care, the state
submitted a failed petition to the federal government for
the authority to add cost sharing. He confirmed that, in
this program, the income eligibility is significantly
greater than in typical Medicaid programs.
Mr. Lindstrom also indicated that the legislature might want
to reiterate the idea that in the case when income
eligibility was relatively high, with federal permission,
the State policy might be to increase co-payments.
Co-Chair Williams asked if federal changes were anticipated.
Mr. Lindstrom stated that he was unaware of any pending
changes, but noted that changes could occur quickly.
Ms. Tupou noted that the bill did give authority to the
Department to increase amounts if federal law changes.
Representative Stoltze asked about the Administration's
position on the issue.
Mr. Lindstrom stated that they deferred to the legislature.
TAPE HFC 03 - 34, Side B
Representative Croft suggested that the federal government
rejected the Denali Kid Care waiver because it targeted a
particular population. He maintained that a cost-sharing
request for the proposed program would also be rejected for
the same reason. He also summarized that the bill gave the
Department of Health and Social Services permission to
charge an uncertain amount at an uncertain time to affected
persons. He suggested that cost sharing be examined when
and if federal guidelines in fact changed. He expressed a
preference to send a clear message with the legislation.
A roll call vote was taken on the motion to adopt Amendment
#1.
IN FAVOR: Croft, Foster, Williams
OPPOSED: Hawker, Meyer, Stoltze, Chenault, Harris
Representatives Joule, Moses, and Whitaker were not present
for the vote.
The motion FAILED on a vote of 3 to 5.
Representative Foster MOVED to report SB 78 out of Committee
with the accompanying fiscal note. There being no OBJECTION
it was so ordered.
SB 78 was REPORTED out of Committee with "no recommendation"
and with a previously published fiscal impact note: HSS #1.
ADJOURNMENT
The meeting was adjourned at 2:42 PM